Our thoughts on investment management and performance and the impact of the conflict in Ukraine on stock markets.

Conflict in Ukraine

Our thoughts are with the people of Ukraine as we witness the tragic events unfolding there. We hope for a quick resolution to this unprovoked aggression, however historic actions by the Putin administration suggest this will not end quickly.

The response from the West is generally agreed to be unprecedented in its speed and scale. While Vladimir Putin would have expected a sanctions regime to be implemented, he perhaps did not anticipate this level of coordination from a Western alliance that has seemed very fractured in recent years.

Extending sanctions beyond Russian oligarchs to include restricting Russia’s access to its foreign currency reserves and cutting off access to the SWIFT payments system has had far- reaching effects. This may trigger further actions from Russia such as cutting off energy supplies to Europe. While that would hurt the Russian economy it would also add to inflationary pressures globally as central banks have already indicated a willingness to raise interest rates.

The humanitarian challenge notwithstanding, we must assess events through the lens of our investment portfolios.

Investment Perspective

From an investment perspective, we consider our exposure as either direct or indirect. The former is easier to quantify than the latter. Taking the US Moderate portfolio as an example, there was a 0.27% direct exposure to Russia via equities and currency in the Vanguard Emerging Markets ETF and the VanEck J.P. Morgan Emerging Markets Local Currency Bond ETF (as of 31 January 2022).

Indirect exposure is more ambiguous and harder to assess. For example, we would expect that sanctions and the falling value of the Rouble would severely impact revenues companies generate from selling products in Russia and that wouldn’t be seen until earnings are reported. A more immediate impact will be further inflationary pressure form a rise in the cost of energy as a result of the conflict. The rise in inflation was already a consideration for us at the end of 2021, which is why we are adding more inflation protection to our portfolios and reducing the duration of the bond investments held.

We do strive to be measured in our actions, especially during periods such as this, and try to look through volatility to focus on the longer- term financial plans that we have built for our clients. As such, we are not currently taking any action as a direct result of Russia’s war in Ukraine. We will take action where we feel it is merited but otherwise will continue as we have always done, to assess the investment impact of events as they unfold.

We know markets work in cycles, so negative periods are not unexpected, but they can be difficult to experience. Part of our job is to support and advise our clients through this turbulence.